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Case GENERAL FUND . DESIGNATED BALANCE FOR WORKING CAPITAL By: Sandra Ashley Helling, Finance Officer Background: The designation of working capital within a fund balance is for the purpose of identifying cash flow resources to support operations until revenues are received. The inability to maintain sufficient cash flow can result in interest expense, strained relations with vendors and at the extreme - bankruptcy. While the designation of a portion of a fund balance is simply a paper entry - it tells the report reader and management how much of a fund balance is "undesignated" or available without jeopardi?Jng current opea'ations. Since 1986, the City of Ramscy has designated the year-end working capitol portion of thc General Fund Balance based on the level of intergovernmental revenue for all Governmental Fund Types and Expendable Trust Funds received in that year. This designation has resulted in significant fluctuations from year to year as changes in MSA, CDBG, grants and other intergovernmental revenue received outside of the General Fund directly impact the designated C, eneral Fund working capitol. The following table demonstrates these fluctuations. Designated as a % of Desig~a,e4 Increase (Decrease) Next Year General Year ~ from Previous Year .~.llgtL.]~flll;ig~ 1991 865,672 (917,743) 34% 1990 1,783,415 191,342 67% 1989 1,592,073 727,826 60% 1988 864,247 (47,873) 35% 1987 912,120 (43,332) 46% 1986 868,788 na 53% Prior to 1986, working capital was not designated. A more common method of designating fund balance for purposes of working capital is to use one half of the General Fund's upcoming year budgeted expenditures. This method recognizes Cities receive property taxes and State aid transfer payments semi-annually with the fu~t payment made in July; therefore, working capital needs directly relate to the upcoming budget year. I have reviewed the City's method of designating working capital with the City's auditors, and they concur with the recommendation below. Staff Recommendation: It is recommended the attached Resolution Establishing a Financial Policy for the Purpose of Designating the Working Capital Portion of the General Fund Balance be adopted by the City of Ramsey. Finance Committee Action: To recommend/not recommend to Council that Resolution g93-04-XX be adopted by the Ramsey City Council. Review Checklist: Finance Officer FC: 4/27/93